The ITC in 2019: Non-Practicing Entities
The U.S. International Trade Commission has the power under Section 337 of the Tariff Act of 1930 to investigate claims that an imported product infringes a U.S. patent and then block the offending imports from the U.S. market. The agency has used that power to become an administrative patent court for imports with an increasingly prominent role in the U.S. patent system. Because the agency employs more favorable procedures and remedies, ITC litigation is a popular forum for patent owners to bring complaints even if they are also suing the defendant in federal district court.
One major difference between the two venues that has prompted an increase in cases filed at the ITC came about after the Supreme Court’s 2006 decision in eBay v. MercExchange. In eBay, the Court ended the long-held practice of automatically issuing injunctions against future infringement in all patent cases. Because U.S. patent law states that courts “may grant injunctions in accordance with the principles of equity,” the Supreme Court held that judges must apply “the traditional four-factor framework that governs the award of injunctive relief” before issuing an injunction. Among those four factors that must be considered is whether monetary damages are adequate to compensate for the plaintiff’s injury.
The most direct consequence of eBay has been the consistent denial of injunctive relief in cases where the patent owner is a licensing company whose only interest in the patent is the ability to monetize its rights through royalty payments. Before eBay, these non-practicing entities (NPEs) could use the threat of an injunction against high-value products to secure outsized royalties for low-quality patents vaguely claiming rights to low-value technologies.
After eBay, there was a surge of cases brought by NPEs at the ITC hoping to secure through an exclusion order what the Supreme Court determined they were not entitled to under patent law.
This phenomenon was well-documented in a study by Colleen Chien and Mark Lemley. They found that NPE cases rose in the five-year period after 2006 as a portion of total ITC investigations and that those NPE cases named more respondents on average than other Section 337 complaints.
The situation also gained the attention of Congress, resulting in multiple hearings before the House Judiciary Committee and the introduction of reform legislation.
In response to this attention, the ITC published its own analysis of Section 337 use by NPEs. In an attempt to mitigated concerns about patent trolls flocking to the ITC, the agency conceived of two categories of NPEs. A Category 1 NPE is “an inventor, a university or other research institution, a technology start-up, a company that designs and sells technology rather than producing products . . . or a similar entity [with] a primary focus in a business other than purchasing and asserting patents.” While a Category 2 NPE is a company that purchased the asserted patents and whose primary business is the acquisition and assertion of patents. This second category describes what are sometimes called patent-assertion entities, or more pejoratively, “patent trolls.”
The ITC has continued to update its report on NPE litigation so that we now have thirteen full years of data to look at.
The purpose and effect of the ITC’s two-category approach was to discredit criticism that implied all NPE cases were brought by trolls. But categorizing cases according to the complainant’s business model also enables the agency to divert attention from the broader problem that ITC litigation is frequently used to adjudicate licensing disputes that have no meaningful connection to cross-border trade.
Nevertheless, the agency’s own data corroborates the claim that Section 337 complaints filed by patent-assertion entities (“Category 2 NPEs”) did indeed surge after eBay. The data also reveals, despite yearly fluctuations, NPE cases have clearly persisted at the ITC over the last decade.
In 2019, the ITC counted four Category 1 NPE cases (6.4 percent of total) and three Category 2 NPE cases (8.5 percent of total). Combining the two categories tells us that 15 percent of the ITC’s new investigations last year were brought by some kind of NPE.
There is no publicly available document indicating which specific complainants were categorized as which kind of NPE, but it’s easy to make some guesses. Looking at the docket myself, I also counted four cases where the complainant looks like a Category 1 NPE (specifically: Tela, Vitaworks, the University of California and Ecofactor), but I counted five Category 2 NPEs (IFT, Data Scape, Rovi, Neodron and Innovation Sciences).
In the last ten years (2010–2019), NPE cases (as designated by the agency) have made up 15.9 percent of all ITC investigations. Regardless of which category these entities fall into, the fact remains that they would all likely not be entitled to injunctive relief in court. Even if we exclude Category 1 NPEs from consideration, we can still see that 8 percent of all ITC investigations in the last ten years were brought by Category 2 NPEs—that is, licensing companies who bought the asserted patents for the sole purpose of litigation.